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1 Winner, Loser, or Innocent Victim? Has Renewable Energy Performed As Expected? James McVeigh, Dallas Burtraw, Joel Darmstadter, and Karen Palmer Discussion Paper March 1999; June P Street, NW Washington, DC Telephone Fax Internet: Resources for the Future. All rights reserved. No portion of this paper may be reproduced without permission of the authors. Discussion papers are research materials circulated by their authors for purposes of information and discussion. They have not undergone formal peer review or the editorial treatment accorded RFF books and other publications.

2 Winner, Loser, or Innocent Victim? Has Renewable Energy Performed As Expected? James McVeigh, Dallas Burtraw, Joel Darmstadter, and Karen Palmer Abstract This study provides an evaluation of the performance of five renewable energy technologies used to generate electricity: biomass, geothermal, solar photovoltaics, solar thermal, and wind. We compared the actual performance of these technologies against stated projections that helped shape public policy goals over the last three decades. Our findings document a significant difference between the success of renewable technologies in penetrating the U.S. electricity generation market and in meeting cost-related goals, when compared with historic projections. In general, renewable technologies have failed to meet expectations with respect to market penetration. They have succeeded, however, in meeting or exceeding expectations with respect to their cost. To a significant degree, the difference in performance in meeting projections of penetration and cost stem from the declining price of conventional generation, which constitutes a moving baseline against which renewable technologies have had to compete. Key Words: renewable energy, regulation, electricity generation, energy cost JEL Classification Numbers: Q42, L94 ii

4 Winner, Loser, or Innocent Victim? Has Renewable Energy Performed As Expected? James McVeigh, Dallas Burtraw, Joel Darmstadter, and Karen Palmer EXECUTIVE SUMMARY Public support for renewable energy technologies has been part of U.S. energy policy for nearly 30 years. Yet these technologies have failed to emerge as a prominent component of the U.S. energy infrastructure. This failure has created the impression that renewable technologies have not met the goals and claims of proponents, and that therefore after several decades of support without success, it is time to pull the plug on renewables. This study evaluates the performance of renewable technologies for electricity generation measured against stated projections that helped shape public policy goals over the last three decades, and we evaluate this performance against projections and trends in conventional electric power generation. We propose two measures for evaluation. One is performance relative to projections for the contribution of renewable technologies to total electricity generation. The second is their performance relative to projections of cost. The renewable energy technologies investigated are biomass, geothermal, solar photovoltaics, solar thermal, and wind. We reviewed 25 studies conducted over the last three decades that contained projections of the costs and market penetration of some or all of these technologies. All the studies included could not be given equal weighting, because the rigor of the analyses varied tremendously. To account for this variation, we developed several qualitative criteria related to the projections of both electricity production and cost. We then evaluated the studies according to these criteria. Our findings document a significant difference between the success of renewable technologies in penetrating the U.S. electricity generation market and in meeting cost-related goals, when compared with historic projections. For market penetration, we find: In general, renewable technologies have failed to meet expectations with respect to market penetration. One exception to this trend is wind, which has met projections from the 1980s, although earlier projections were overly optimistic. The other exception is biomass applications, for which market penetration has exceeded previous projections. For three of five of the renewable technologies reviewed, projections of installed capacity and generation have generally been revised downward over the past three decades. Graphs of these three sets of projections take the form of a "fan diagram" resulting from successive revisions downward of the projections. i

5 Executive Summary RFF Nongovernmental organizations were generally more conservative than government, industry, or research organizations in their projections of capacity and generation of the various renewable technologies. With respect to cost, however, the performance of renewable technologies is significantly different. Renewable technologies have succeeded in meeting expectations with respect to cost. For every technology analyzed, successive generations of projections of cost have either agreed with previous projections or have declined relative to them. In virtually every case, the path of actual cost has equaled or been below the projections for that period in time. The only exception appears in the case of capital costs for photovoltaics, where expectations from the 1970s and 1980s underestimated actual realized costs in the 1980s and 1990s. Retail prices of electricity from conventional sources have also been overestimated historically, yielding another fan diagram of projections from successive time periods. These findings refute the premise that renewable technologies have failed to meet public policy goals, especially with respect to projections of cost, which we perceive to be the more important measure. This is remarkable, given that renewable technologies have not significantly penetrated the market, nor have they attracted large-scale investment and production that can contribute to technological development or economies of scale in production, as many analysts anticipated when forming their cost projections. The small market share of renewables appears to have more to do with changes outside their own development--principally regulatory reform and changes in conventional technologies--than with their technological performance. The industry appears to have been most successful with respect to factors most within their control. Our analysis indicates the small market share of renewable technologies appears to have more to do with changes outside the development of renewable technologies than with their own technological performance. Over the roughly three decades we evaluate, regulatory reform has swept the energy industry. Prominent policy changes such as the deregulation of natural gas and oil coupled with declining technical costs of production have made these conventional energy fuels less expensive. An increasingly competitive world petroleum market has led to a decline and stabilization in the price of oil, such that currently the real price of oil is the lowest that has been observed since Deregulation of the railroads led to dramatic cost reductions for coal use in electricity generation. The Public Utility Regulatory Policies Act (PURPA) of 1978 opened the door for nonutility generation of electricity for resale, and the Energy Policy Act of 1992 opened the door for competitive wholesale generation. These changes and other technological developments have produced a dramatic decline in the price of fossil-fueled electricity generation. In addition, public policy and technological changes have led to a dramatic improvement in the environmental performance of these technologies (especially for newly constructed facilities). ii

6 Executive Summary RFF The ultimate impacts of these changes in the regulation, technology and market structure of fossil fuels have been mostly favorable for electricity consumers; they have also been frustratingly disappointing for the fate of renewable technologies. Renewable technologies have had to compete in this changing environment. Hence, renewable technologies may be seen as a relative loser--perhaps the innocent victim--amidst the widespread success of a wide array of public policies aimed at energy markets. We conclude that many significant expectations and public policy goals regarding development of renewable technologies for electricity generation have been achieved. Any argument that public policy support for renewable technologies should be ended because "past efforts have been unsuccessful" is based on a faulty premise. These findings should be of interest in the policy debate about the possible future role of renewable energy technologies, and about whether public policy can contribute effectively to the direction and pace of technological change. While rejecting the negative, we can not make an unambiguously positive assertion. That is, we do not attempt to attribute the successful achievement of projected technological development and cost declines to a specific government policy or any other factor. We do not make a direct case for continued government support of these technologies. Nonetheless, the successful achievement of cost-related goals provides some reason for optimism with respect to the role of renewable technologies and of public policy in meeting future challenges such as the reduction in greenhouse gas emissions. iii

7 WINNER, LOSER, OR INNOCENT VICTIM? HAS RENEWABLE ENERGY PERFORMED AS EXPECTED? James McVeigh, Dallas Burtraw, Joel Darmstadter, and Karen Palmer * INTRODUCTION AND OVERVIEW At least since the oil spill off the coast of Santa Barbara, California in 1969, the energy price upheavals of the 1970s, and the Three Mile Island meltdown of 1979, the choice of technologies to meet U.S. energy demand has appeared prominently on the agenda of U.S. public opinion and policy. Concerns about the environment, the economy, equity, monopoly power, and the role of the public sector have been manifest in the public debate. One outcome has been public policy and public-sector support, albeit sometimes faltering support, for the development of renewable energy technologies. Nearly 30 years into this public discussion, the reality is that renewable technologies have failed to emerge as a prominent component of the U.S. energy infrastructure. This has created the perception that renewables have not met the goals and claims of proponents. The implication is that after several decades of support without success, it is time to pull the plug on renewables. 1 This study does not address the merits of this claim nor its implication for public policy; instead it focuses on the premise of the argument--that renewable technologies have not met the goals and claims of their proponents. We evaluate the performance of renewable technologies for electricity generation measured against stated timetables that helped shape public policy goals, and we also evaluate these technologies against projections and trends in conventional electric power generation. The renewable energy technologies we investigated are biomass, geothermal, solar photovoltaics, solar thermal, and wind. Our findings refute the premise that renewable technologies have failed to meet public policy goals. To summarize briefly, we confirm that penetration into the market has fallen far short of projections. However, the costs of these technologies generally have fallen in accordance with the projections of their proponents, sometimes exceeding the projected * James McVeigh, Graduate Student, School of Public and Environmental Affairs, Indiana University; Dallas Burtraw, Joel Darmstadter and Karen Palmer, Senior Fellows, Resources for the Future. The authors are grateful to the Renewable Energy Policy Project for partial funding of this study, and to Martin Heintzelman for assistance. Individuals too numerous to list have contributed their time and perspective to help guide the study. However, responsibility for errors and omissions remain with the authors. Direct correspondence to Burtraw: Resources for the Future, 1616 P Street, NW, Washington DC For example, see: MISI (1998), and Bradley (1997). 1

8 decline. This is remarkable, given that renewable technologies have not significantly penetrated the market, nor have they attracted large-scale investment and production that can contribute to technological development or economies of scale in production, as many analysts anticipated when forming their cost projections. Our analysis indicates that the small market share of renewable technologies appears to have more to do with changes outside their development than with their own technological performance. Over roughly three decades, regulatory reform has swept the energy industry. Prominent policy changes such as the deregulation of natural gas and oil coupled with declining technical costs of production have made these conventional energy fuels less expensive. An increasingly competitive world petroleum market has led to a decline and stabilization in the price of oil, such that currently the real price of oil is at its lowest since Deregulation of the railroads led to dramatic cost reductions for coal use in electricity generation. The Public Utility Regulatory Policies Act (PURPA) of 1978 opened the door for nonutility generation of electricity for resale, and the Energy Policy Act of 1992 paved the way for competitive wholesale generation. These changes and other technological developments have produced a dramatic decline in the price of fossil-fueled electricity generation. In addition, public policy and technological changes have led to a dramatic improvement in the environmental performance of these technologies (especially for newly constructed facilities). The ultimate impacts of these changes in the regulation, technology and market structure of fossil fuels have been mostly favorable for electricity consumers; they have also been frustratingly disappointing for the fate of renewable technologies. Renewable technologies have had to compete in this changing environment. Hence, renewable technologies may be seen as a relative loser--perhaps the innocent victim--amidst the widespread success of a wide array of public policies aimed at energy markets. We conclude that many significant expectations and public policy goals regarding development of renewable technologies for electricity generation have been achieved. Any argument that public policy support for renewable technologies should be ended because "past efforts have been unsuccessful" is based on a faulty premise. These findings should be of interest in the policy debate about the possible future role of renewable energy technologies, and about whether public policy can contribute effectively to the direction and pace of technological change. Although we reject the negative, we cannot make an unambiguously positive assertion. That is, we do not attempt to attribute the successful achievement of projected technological development and cost declines to a specific government policy or any other factor. We do not make a direct case for continued government support of these technologies. 2 Although the role of oil in electricity generation has diminished over time, it remained important to generation during peak periods of demand until recently. More important, in the 1970s and early 1980s the choice among conventional fuels was between oil and coal, as the availability of natural gas was in question. Hence, the decline in oil prices had an influence on the pace of technological change and cost reductions in the coal industry. 2

9 Nonetheless, the successful achievement of cost-related goals provides some reason for optimism with respect to the role of renewable technologies and of public policy in meeting future challenges such as reducing greenhouse gas emissions. METHODS To evaluate the performance of renewable technologies, we documented projections made by a variety of organizations (see List of Studies Reviewed) and compared them with what has actually transpired over the last three decades. These forecasts varied with respect to their intervals and ultimate time horizon. We report projections in five-year increments beginning in the 1970s, with forecasts as far as Our principal focus is performance to the mid-1990s. We follow up that discussion with a retrospective look at how projections for conventional power systems compare with actual outcomes over the same time horizon. 3 Technologies Each category of renewable energy technologies for electricity generation reviewed encompasses a variety of technologies, but for ease of discussion they have been aggregated into biomass, geothermal, solar photovoltaics, solar thermal, and wind. Hydropower has been excluded for two reasons: first, it has been developed so extensively that typically it is considered a conventional source of electricity, and, second, significant expansion of this resource would face severe opposition based on environmental concerns. Similar considerations apply to our exclusion of nuclear power, whose underlying resource base could, like geothermal energy, be viewed as virtually unlimited. Subsidies and Incentives The studies we reviewed differed in their level of sophistication of potentially important assumptions, including the treatment of subsidies and incentives for the development of renewable and nonrenewable technologies. On the federal level, these incentives included investment tax credits, production credits, and accelerated depreciation of capital. Many states offered various incentives for renewables, such as California's Interim Standard Offer contracts, which were offered to Qualifying Facilities and Cogenerators under PURPA, and additional investment tax credits of percent. Direct expenditures by government on research and various other subsidies contributed to the development of not only renewable technologies but nonrenewable technologies as well. 4 3 Conventional power systems include all forms of generation, of which renewables are just a small portion. 4 Expenditures through the Department of Energy on research, development, and demonstration projects for renewable and fossil technologies were about equal in 1980 and both were in excess of $1.3 billion. Both fell by nearly three-quarters by 1985, but by 1990 expenditures on renewables continued to fall to $129 million while expenditures on fossil rose to over $1.1 billion. In 1995 they were again similar, with renewables receiving $342 million and fossil receiving $504 (OTA, 1995, page 33; 1995 dollars). 3

10 The varied treatment of incentives in these studies is relevant in two ways. If possible, it would be best to control for the assumption about the level of public-sector incentives over the horizon contained in each study with respect to the cost projections and reported cost of each study, as well as with respect to projected market penetration. Unfortunately, most of the studies failed to make their assumptions explicit. Those that did so did not offer enough complementary detail to allow us to disentangle the effect of these assumptions from those of others in the study. Therefore on this and many other issues we accept the projections at face value. That is, we do not adjust the projections for potential differences in their underlying assumptions. 5 Clearly, projections of cost and market penetration sometimes were built with anticipation of sustained high levels of government support. To the extent that this support did not materialize, was intermittent, or was dominated by support for conventional technologies, this could have weakened the performance of renewable technologies in comparison with the projections. Characteristics of the Technologies Another missing and potentially important piece of the analysis is an accounting of the special characteristics of renewable technologies that make their marginal cost in the delivery of energy services (and their environmental characteristics) differ in qualitative ways from other technologies. One aspect that detracts from their value to an electricity grid is the intermittent generation potential of solar and wind resources. Absent a technology such as hydroelectric pumped storage or batteries to store electricity and/or potential energy, the energy from the sun and the wind are only available a portion of each day. Often the availability coincides with periods of peak energy demand, but not always. The possible unavailability of these resources, especially at peak periods, detracts from their potential contribution to a system grid. Yet these technologies have an offsetting virtue associated with their relatively small scale and independence from fuel supply. These attributes make siting easier and especially practical in remote areas not served by the electricity grid. 6 This feature enhances the "niche market" appeal of renewable technologies, particularly in remote areas of the Third World. Hence renewable energy will often compete not on the cost of energy, but on the basis of value provided to the customer. In addition, the distributed nature of these generation resources can be used to ease congestion and loop-flow problems on an electricity grid, thereby adding to their value within an electric system. 5 Comments on preliminary versions of this paper have been on opposite sides of this issue. Renewable advocates have argued that we should look to contracting issues, subsidies, and market imperfections as obstacles to renewable technologies. A critic of renewables has argued the opposite, that we should look to these same issues to find preferential treatment of renewables. Indeed, these are important issues that have significant bearing on an evaluation of renewables, but they are not the focus of this study. 6 There may be other impediments to siting of renewable generating facilities. For example, objections to noise levels and potential damages to migrating birds can complicate the siting of wind turbines (Gipe, 1995; Bradley, 1997). 4

11 Selecting Studies for Review In designing the study, we tried to cover a wide range of the projections that were cast into the public debate, though of course we could not do so exhaustively. About 60 studies were located. Not all of those found could be given equal weighting, because the rigor of the analyses varied tremendously. To account for this variation we developed a qualitative scheme to evaluate the studies. First, on subjective but fairly transparent grounds, we reduced the number of studies we reviewed in detail to Second, we constructed explicit criteria and evaluated the studies in light of these in order to develop weights that were applied to each study in the aggregate analysis. The criteria are listed in Tables 1 and 2. 8 For each result, the median value among the studies (after accounting for the weighting) is the point used as an estimate. 9 It is noteworthy that the results are not highly sensitive to weights given to the studies. The overall results displayed in the next section are largely unaffected by our rating scheme compared with one that would have applied equal weights to each of the 25 studies. This is partly due to the use of a median value rather than a mean value of the weighted studies. This also indicates that the rigorous and not-so-rigorous studies were distributed about equally in the sample. Also reported in Tables 1 and 2 is an affiliation of the author or authors by categories described below. The column Broad Technical Specification indicates whether the study addressed all, many, or just one of the renewable technologies we considered. Further, the Tables indicate the range of years covered in the study. These two columns were not used in weighting the studies. We organized the studies in two different ways. Our primary focus is a chronological organization by the decade when the studies were written (1970s, 1980s, and 1990s). A secondary focus is the affiliation of the authors: government agencies, research institutions (including national labs and academic groups), the Electric Power Research Institute (EPRI), and nongovernmental organizations (NGOs). In our sample, projections from within the 7 For example, several studies were excluded because we were unable to locate the entire report. Others were largely journalistic in nature, lacking the technical detail to make their inclusion useful. 8 Criteria concerning projections of electricity production involved whether the following assumptions were explicit: policy initiatives, total electricity/energy demand, cost of conventional generation/fuel, and the continued existence of tax credits. Also we considered whether the assumptions or results were specified by region, and whether the study was original work. Criteria having to do with projections of cost involved whether the following were explicit: the discount rate, year in which dollars are denominated, operating and maintenance cost, and capacity utilization rates. Again, we considered whether the study was original work. 9 A "score" of 0.5, 1.0, or 1.5 was given to each study with respect to each of the criteria, and the scores were tallied to develop an overall weight for each study with respect to production projections, and separately with respect to cost projections. Weights for projections of cost of capital and cost of electricity differ because the studies differed with respect to whether this information was explicit. Similarly, the weights for projections of capacity and generation differ because of information that may not have been explicit in the study. 5

14 renewable energy technology industry itself are not represented due to our inability to locate original sources. 10 Evaluation Criteria Market Penetration The first evaluation criterion we considered was penetration into the market or--the equivalent--the contribution of technologies to electricity supply. This is measured by electricity generation and installed capacity. We placed primary emphasis on electricity generation--the measure of how much energy is actually produced by a specific technology over the course of a year, reported in million kilowatt-hours, or gigawatt-hours (GWh). We occasionally refer to capacity, which is the measure of how much electricity is available at any one point in time reported in megawatts (MW), and is the sum of all nameplate ratings of the respective generation sources. 11 Cost The second evaluation criterion was cost, measured by the levelized cost of electricity generation and by capital costs. The cost of electricity at point of production was our primary measure, and it incorporates capital, fuel, and operation and maintenance (O/M) costs, as well as expected lifetime and capacity factors. The total costs of production over the lifetime of the facility were amortized in a straight-line fashion (just as payments for a standard home mortgage would be). This annual cost was divided by the average annual amount of electricity produced over that lifetime to calculate the levelized cost of electricity generation (COE). Levelized cost is reported in mills per kilowatt-hour (mills/kwh), where a mill is equal to one-tenth of one cent. We occasionally refer to capital costs, measured by the dollar expenditure for the rated capacity in dollars per kilowatt ($/kw). Cost data are reported in constant 1995 dollars. To normalize costs we used the consumer price index, and assumed values in each study were denominated in dollars for the year the study was published if no other information was given. None of the studies reviewed offered a complete set of projections. Transformations were made from capacity to generation and vice versa, and from capital cost to the levelized cost of energy for each of the technologies using standard capacity and utilization factors. When data were plotted on a logarithmic scale, geometric means were used to interpolate estimates for missing time periods between projected years in each study; otherwise, arithmetic means were used. 10 A considerable effort was made to contact industry associations and individual firms, some of which provided us with technical background or served as reviewers of this study. However, off-the-shelf estimates by firms in the renewable technology industries were not readily available to us. 11 We restrict our focus to the U.S. market, to the exclusion of the expanding opportunities for U.S. technology in foreign markets. However, we do not believe this was the primary context for public policy debates over the period we considered, nor was it a primary element of the studies we reviewed. 8

15 For each technology we also constructed a measure of actual generation and cost. For the early years, assessments by different organizations of the actual generation and costs of renewable technologies often disagreed. In such cases, we relied on whatever assessments were available from the Energy Information Administration (EIA). FINDINGS In this section we summarize projections and actual performance for each renewable technology, and end with a review of projections for electricity generation from conventional sources. Note that many of the graphs use a log scale to display results. Note also that sharp changes in the slopes of some of these graphs are in part an artifact of our chosen methodology, which selects a median value among projections for each five-year increment. There is considerable noise in the data (i.e., a random aspect to the estimates due to our interpretation of the studies and translation of their results into common forms of measurement) due to reasons we have outlined. Hence, we chose to report our findings as graphs, which communicate the qualitative nature of the findings better than data tables would. The data tables are sensitive to our assumptions and interpretations of previous studies; the trends illustrated in the graphs are much less sensitive Wind Production In the 1970s, projections for wind generating capacity were high due to assumptions influenced by the energy market disruptions of that decade. 13 Projections were as high as 45,000 MW for 1995 and 140,000 MW by 2000 (CONAES, 1979c). Studies of generation and capacity during the following decades offered projections that were lower by an order of magnitude, due in large part to declining fossil fuel prices. In Figure 1 (p. 10) this is illustrated by a large shift downward in projections of generation after the 1970s. Projections of generation and capacity from the 1990s are consistent with those from the 1980s. The industry experienced a brief decline in capacity in the early 1990s, due in part to retiring standard-offer contracts under PURPA and a decline in other public-sector incentives. Actual wind energy generation has been on the rise since the mid-1970s, but specific estimates prior to 1990 are quite uncertain and are not included in the graphs. In 1995, wind production was approximately 3,196 GWh. 12 Data tables and a larger set of graphs are available from the authors. 13 This analysis does not include cost projections for small-scale wind turbines intended for distributed applications - that is, applications located close to the user that tend to be less than 50-kW in size. 9

17 Costs Figure 2 (p. 10) illustrates that projections of a decline in the capital cost and COE of wind have been realized or exceeded over time. Wind energy (along with geothermal) is the least-cost renewable technology currently, but its competitive standing depends on the availability of sites with strong wind resources and with access to transmission lines. Some early projections expected that the exhaustion of good wind resource sites early in the development of the technology would prevent costs from falling. For instance, the Committee on Nuclear and Alternative Energy Systems of the National Academy of Sciences envisioned rising capital costs and COE after 1995 for wind energy due to the need to use sites "with lower average wind speeds because the best sites have already been used" (CONAES, 1979c). The exhaustion of valued wind sites has not occurred, however, because of the unmet penetration of wind into the market and because the inventory of sites identified to have strong wind resources has expanded. 14 In addition, technological advances such as lower start-up speeds have improved profitability at lower wind speeds. Wind has a current cost of about 52 mills/kwh at existing facilities (Resource Data Inernational, 1995); and a recent bid for 30 mills/kwh for a 100 MW wind farm was submitted to Northern States Power in Minnesota (Regulatory Assistance Project, 1998). 15 Current cost estimates are close to the average cost of generation from conventional sources. 2. Solar Photovoltaics Production Like wind, photovoltaic cost projections have been revised downward from the 1970s. Projections from the 1970s for solar photovoltaic range tremendously, as seen in Figure 3 (p. 12). Some authors forecast nearly 35,000 MW of capacity (FEA, 1974b) and 150,000 GWh of generation by 2000 (CONAES, 1979c); while others forecast nearly zero capacity and generation by 2020 (EPRI, 1977). Viewing the median value of projections of generation chronologically reveals a "fan diagram" that results from downward revisions of expected penetration. This pattern appears often in the Figures on other technologies as well. Capacity and generation have grown more than 10-fold since the early 1980s, but market penetration has been confined to niche markets and remote applications. In 1995, about 89.2 MW of capacity were installed in the United States. Costs Early studies were relatively optimistic regarding trends in costs for photovoltaic technology compared with those developed later. Stoughbaugh and Yergin (1979) projected 14 The siting process includes a trade-off between the highest quality wind resource locations and proximity to transmission lines. 15 Presumably this bid takes advantage of the 15 mills/kwh Renewable Energy Production Credit currently available to wind and closed-loop biomass, which would be reflected in the bid price. 11

19 that by 1990 the cost of electricity from photovoltaic technology would be about 100 mills/kwh (Stoughbaugh and Yergin, 1979). Another early study projected an eventual leveling off of capital costs at around $3,000/kW and of COE at around 150 mills/kwh by 1990 (CONAES, 1979c). Figure 4 (p. 12) indicates these early projections of costs were not achieved. Since the 1980s, however, projections of COE declines have been met or exceeded. Despite limited market penetration, capital costs and COE have dropped significantly. The current cost of capacity is about $7,000/kW, and the cost of generation is still over 200 mills/kwh. Recent studies project continuing declines in cost in coming decades due to efficiency improvements in both manufacturing the cells and capturing solar radiation and transforming it to electricity (OTA, 1995; PCAST, 1997; EPRI, 1997). 3. Solar Thermal Production Projections of solar thermal electricity production also form a fan diagram. Solar thermal electricity production began in the late 1970s with the 10-MW Solar One, a central station receiver, in the desert of southern California. Projections made during the late 1970s and early 1980s put solar thermal capacity at anywhere from 240 MW to 3,400 MW, and expected generation to range from 480 GWh to 5,400 GWh by the end of the 1980s (EIA, 1980; CONAES, 1979c). Luz International's facilities (SEGS I through IX) provided research on commercial adaptability of the technology, and demonstration of the first Stirling dish engine in 1984 signaled that these goals might be attainable by the end of the decade. Projections for capacity during the 1980s reflected this expectation. However, reductions in public-sector financial incentives and government R&D spending on solar thermal hit this technology particularly hard. Luz International entered bankruptcy, contributing to a decline in production in the beginning of the 1990s. As with photovoltaics, the outcome is a fan diagram of declining forecasts of generation apparent in Figure 5 (p. 14). Recent projections anticipate capacity and generation to increase to twice current levels by 2020 (EIA, 1997a). Costs Few projections exist for the capital costs of solar thermal technology, and those we found varied greatly with regard to the type of technology modeled. There is also substantial variation in the measure of COE. Projections from the 1970s for 1990 ranged from 36 to 198 mills/kwh (FEA, 1976; CONAES, 1979c). Figure 6 (p. 14) illustrates that the median projections have been tracked closely by the actual COE. 13

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